The African retail market is set to boom in the next decade driven by a rapidly expanding middle, the emergence and wider adoption of technologies, and the operationalization of the African Continental Free Trade Area (AfCFTA). According to Euromonitor International, retail sales in the region amounted to over US$500 billion in 2018. This could exponentially increase particularly under AfCFTA which has a combined market of 1.2+ billion people and a GDP of US$2.5 trillion!
Let’s however not get ahead of ourselves. Africa’s retail landscape is far from being monolithic. Each of the 55 independent states has its own unique retail market with economies and consumption patterns that are anything but similar to their neighbor. Still, a lot of billions are to be made in Africa particularly now that the retail landscape in Europe and North America is approaching its saturation point with little room for further growth. But how does one win in Africa? This article explores the complex nature of the retail industry in Africa and the trends that are forecasted to shape the future of the industry.
A SECTOR DOMINATED BY TRADITIONAL RETAIL
Globally, higher GDP usually translates to a higher market penetration of modern retail. The same is not true for Africa. Here, traditional and informal retailing still dominate the market. According to a recent report by Boston Consulting Group (BCG), African consumers on average continue to buy more than 70% of their food, beverages, and personal care products from the continent’s more than 2.5 million small, independent shops.
What we call traditional retailers varies from country to country. In Morocco, it’s known as a hanout. In Egypt, it’s a bakkal. In Kenya, it’s a duka. In South Africa, it’s a spaza In the Yoruba language of Southwest Nigeria, it’s an oja Just like their names, their spread across the continent also varies. In Nigeria, there are more than 600,000 small retailers who combined account for 97% of national sales, according to the BCG report. On the flip side, only 30% of sales come from Spazas in South Africa. In Morocco, Kenya, and Egypt, traditional retailers account for 82%, 77%, and 75% of all retail sales despite all the three countries having several well-established hypermarket and supermarket chains.
Several factors make traditional retailers remarkably resilient. According to the BCG report, Small shops offer the proximity, flexibility, and convenient operating hours needed to serve their communities. They also often allow customers with limited incomes to purchase small quantities on credit. This is better reflected in Morocco where a high proportion of consumers still prefer to buy from hanout where credit is offered in 9 out of 10 shops.
Despite its popularity and resilience, traditional retail in Africa faces many imposing challenges, including the expansion of modern retail, the nascent rise of e-commerce, and changes in consumer behavior that were accelerated by the COVID-19 pandemic. In response to such challenges, a growing portion of traditional shops are slowly adopting digital retail services to remain relevant in a world where most activities are happening online. In Kenya, for example, the portion of retailers offering remote ordering rose from 27% in early 2019 to 39% in late 2021, according to BCG. The situation is almost similar in Egypt where around onethird offer remote ordering and delivery and bill payment services.
Startups Provide Traditional Retailers With Digital Capabilities
With the transition to digital becoming almost inevitable, a growing number of startups have emerged to provide traditional retailers with innovative digital solutions that can resolve bottlenecks and accelerate their transformation. A majority of these startups are targeting the inefficient distribution systems that often make it hard for traditional shops to obtain sufficient inventory. In most cases, retailers close their shops for several hours so they can purchase goods from wholesalers. As a solution to this problem, Nigerian B2B digital marketplace Alerzo, for example, enables more than 100,000 users to purchase inventory directly from manufacturers, receive and make cashless payments, and better track their revenues.
Another popular strategy is the adoption of small trader shops are agents for bigger e-commerce startups. The model is popular in Kenya with pioneer startup Copia Global leveraging the trust that consumers have on shopkeepers to persuade them to buy products on their e-commerce site. Once an order has been made and confirmed, Copia delivers the products to the agent within 48 hours for the customer to pick them up. With this model, even the not-so-techsavvy consumers can still order anything they need online, and small shop owners also get to participate in the rapidly expanding e-commerce network by making an income through commissions.
Modern Retail On The Rise
In many African nations, including Morocco, Egypt, and Nigeria, the reach of modern retail is well below its potential. South Africa is an exception on the continent. Its modern retail sector is quite mature and supermarket chains such as Shoprite, Pick ‘n’ Pay, and Spar account for more than 70% of retail sales. BCG in its report noted that opportunities for growth in this country are limited.
Wasoko allows Kenyan retailers to order stock on credit via a mobile app and receive it the same day. Still in the East African country, Twiga Foods has been providing over 140,000 small retailers with high quality foods, produce and consumer goods by leveraging the latest technology and the ubiquity of mobile phones combined with modern distribution and logistics. Up in the North, Moroccan procurement B2B marketplace Chari, which has a market value of more than US$100 million, is also following the same script, aggregating demand from independent retailers through its app and delivering goods around the clock.
Potential, however, lies in the rest of the continent where modern trade is yet to penetrate. In Nigeria for example, modern retail remains very fragmented and is led by international hypermarket brands, such as Shoprite and Spar which combined have about 40 stores in a country of more than 200 million people. A few small local chains, such as Hubmart, Justrite, Addide, and Foodco are also emerging to fill the extremely huge gap that exists in Nigeria.
The same experience is experienced in Morocco where despite the expansion of modern retailers such as Marjane, Carrefour, and BIM, modern retail only accounts for 18% of total trade. Unlike Nigeria where modern retail is struggling, in Morocco it’s the opposite with the largest retailer BIM having more than 550 stores. The closest competitors Marjane and Carrefour each have a respectable store network that is well above the 100-store mark, demonstrating a relatively mature market. In the financial year 2022, Marjane achieved a turnover of US$1.22 billion, providing an insight into the size of operations of these retail companies. With such high store numbers, modern retailers have somehow managed to create a shift toward modern trade with a 2022 survey by Sunergia Group revealing that 33% of Moroccans shop at medium-sized markets and supermarkets at least once a week. In Casablanca, where purchasing power is higher, 43% of respondents said they visit supermarkets at least once a week.
In Egypt, the market is warming up to modern retailers, particularly locally based ones which are emerging rapidly across all formats. Modern formats posted 21% annual growth from 2015 through 2020, according to the BCG report. Their market share over that period rose from 15% to 25%, one of the highest growth rates across the continent. The Kazyon discount supermarket has expanded rapidly in Egypt since 2014, with small- format stores in underserved lowand middle-income areas. Today, the supermarket chain has over 600 stores in 17 governorates. Other successful Egyptian supermarket chains include Awlad Ragab and Seoudi.
Kenya has a similar case to Egypt where modern retail is rapidly expanding led by homegrown brand Naivas which in April 2023 opened its 92ed branch. A month earlier, close competitor Quickmart opened its 52ed store in the country in push to reach more customers. A late entrant, French supermarket brand operated by UAE-based Majid AL Futtaim,
Carrefour has also expanded its store network to 19, 8 years after it opened its flagship store in Two Rivers Mall, one of the country’s largest malls. In March 2023, Carrefour Kenya posted annual sales of KES40 billion (US$290 million), once again demonstrating the lucrativeness of Kenya’s modern retail. Its however noteworthy to note that Kenya has more than 20 large supermarket chains which account for more than 25% of all retail sales in the country. BCG is optimistic about its outlook for modern trade in Kenya noting that the current leading brands had managed to find the right formulas
MARKET TRENDS: RETAIL IN AFRICA
in terms of format and assortment to address the market and may therefore expand in the future to reach more underserved regions.
INVESTMENTS, MERGERS & ACQUISITION DRIVE GROWTH
Over the past few years, the modern retail segment in Africa has been characterized by increased investment by retail chain owners. In Morocco, LabelVie which operates the carrefour brand in the country has in recent years invested heavily in the supermarket chain’s expansion. In 2022, the company invested US$320 million in capital expenditure including the opening of 19 stores. Revenues that year jumped 19% to US$3.8 billion. In Egypt, Carrefour Egypt, which is owned and operated by Majid Al-Futtaim (MAF) Retail, announced plans to pour significant further investment into the Egyptian market, including EGP400m (US$16 million) in 2023 and EGP750m (US$30 million) through 2025.
The investments are ostensibly meant to counter competition from Kazyon which in itself has been receiving investment funding from its backers. In April 2023, Development Partners International announced that it has injected US$165 million equity investment into Kazyon, alongside co-investors, including British International Investment (BII), South Suez, and others. According to DPI, the investment is expected to accelerate Kazyon’s ambitious growth strategy which includes expanding its retail network which is currently comprised of over 600 stores.
In Kenya, private equity capital, has been monumental in driving modern retail growth. In 2020, a cash-strapped Naivas Limited (Kenya) raised KES6 billion (US$49.8 million) from the sale of a 31.5 percent stake in 2020 to a consortium of investors including the International Finance Corporation (IFC), private equity firms Amethis and MCB Equity Fund and German sovereign wealth fund DEG. While announcing its exit from the Naivas venture, Amethis noted that during the investment period, Naivas was able to grow its retail network from just 60 to over 84. Today Naivas is nearly approaching 100 stores and has new venture partners in the name of IBL group, A Mauritian conglomerate, and Proparco. Its closest competitor Quick Mart has also benefited greatly from its private equity backers Adenia Partners who have been instrumental in growing the retail chain into the second largest in Kenya. The Majid Al Futtaim-operated Carrefour Kenya enjoys the financial muscle of its parent company which reported revenues of US$9.89 billion in 2023. Today the retailer has managed to grow its network to 19 stores barely 6 years after it first entered the Kenyan market.
In South Africa, it has been a bag full of opportunities and challenges. After having trouble succeeding in the rest of the continent, Shoprite the country’s largest retailer, was forced to retreat back home and strategize. The company closed its operations in Kenya, Uganda, Nigeria, and Madagascar and only maintained its presence in Zambia and Angola. Meanwhile, in South Africa, the company embarked on an expansion drive that saw it acquire Massmart’s non-core food businesses. A local daily, Business Live, recently reported that Shoprite could also be exploring a deal to acquire assets of distressed retailer Choppies South Africa. Still, in South Africa, Walmart Inc has launched a 6.4 billion rand (US$377.6 million) offer for the remaining 47% of South African retailer Massmart it does not already own. “The potential offer, if finalised, will provide Massmart with needed access to ongoing financial and operational support,” Massmart said in a statement.
Choppies, the largest retailer in southern Africa outside of South Africa, has also found itself in murky waters after it incurred losses and closure costs of BWP1.7 billion (US$125.35 million) for the now discontinued operations in South Africa, Kenya, Tanzania, and Mozambique. In 2022, the company announced that it was in technical insolvency and may in the future require a recapitalization to strengthen the balance sheet. Having burnt its fingers abroad, the company has decided to refocus its energies back home where its strengths lie. The company opened 13 stores in 2022, 5 of which were opened in Botswana while the remainder were in its rest of Africa operations which include Namibia (4), Zambia (3), and Zimbabwe (1).
The failure of Choppies and Shoprite to replicate their home successes abroad proves what we have been stating throughout this article, that the African retail landscape is diverse and that it is not guaranteed that successes in one market could be easily replicated in another. Carrefour franchise owner Majid Al Futtaim seems to figure out the right formulas in terms of format and assortment to address the different African markets where it has a presence. Its successes in Kenya and Uganda should be given particular focus as these are the same market where both Shoprite and Massmart retreated from after failing to turn a profit.
Future Is Modern And Local
Analysts at BCG foresee a future where the retail trade in Africa becomes increasingly modern as the middle class in many countries expands. A precedent for this transition has been set in Morocco where a rise in incomes, particularly in the cities, has resulted in a greater transition to modern trade. Modern retailers here are capitalizing on the opportunity by aggressively expanding their store footprints. We can only expect the same to be replicated elsewhere in the continent as incomes rise. Despite the potential of modern retail, it cannot however be stressed enough, that to succeed, modern retails will need to be local and by that we mean, they need to adopt formats—whether big or small—that are tailored to the needs of their communities. Despite the incursion by modern retail, traditional retail is still expected to continue playing a dominant role in the sector due to the value proposition that it offers customers. If the current trends are anything to go by, the traditional retailers of the future will have more sophisticated business models that leverage opportunities offered by digital solutions to offer new services that align to the present and future needs of the African consumer.
This article first appeared in Issue 57 of Food Business Africa Magazine. Click Here to read the entire magazine.